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Benefits of Investing

If you keep your money at home in a piggy bank instead of investing it, your money doesn't work for you. You'll never have any more money than what you put away.

If you invest your money, you can make more money. You can earn interest or the value of your investments can increase. And depending on how much risk you are willing to take, you can get a higher return (your money will grow more over time). Keep in mind that investments with higher return rates (like stocks) are often riskier and can lose value.

Let's look at how much your money would grow in specific types of accounts if you put $10 in each one every month.

Value of $10 saved per month
Account type and Annual Return 5 yrs 10 yrs 15 yrs 20 yrs 25 yrs
Piggy Bank $600 $1,200 $1,800 $2,400 $3,000
Regular Savings Account @ 1.5% $618 $1,284 $2,002 $2,775 $3,608
Money Market Account @ 3% $637 $1,376 $2,232 $3,224 $4,375
Stock Mutual Fund @ 7% $690 $1,658 $3,015 $4,919 $7,590

What are the best investments for me?

Investing starts with a financial plan. Make a list of the financial goals that are most important to you, such as buying a home, paying for a child's college education or living comfortably in retirement. Then look at where your money comes from and where it goes. If you're spending all of the money you make, and never have enough money to save or invest, look for ways to cut back on your expenses. The EverydayMoney Budgeting Tool can help with this.

When you find the extra money, make it a habit of paying yourself first and putting the money into your savings and investments.

Sound investment decisions require work, and you're probably already busy with your job, your family and other responsibilities. If you feel you don't know enough about investing on your own, you may need professional investment advice. Investment professionals offer a variety of services at a variety of prices. So it pays to shop around.

Here are some guidelines to help with your investment decisions:

I need the money down the road. If you are saving for your retirement that is 35 years away, you don't want your money to grow too slowly. Putting money away that you may not need for a while may be worth some risks to get more money back in the future. Stocks generally have higher risks and higher long-term returns.

I need the money pretty soon. If you are saving for a short-term goal, you don't want to choose a risky investment. When it's time to sell, you may lose money. Many investments move up and down in value quickly. To make your money work the most for you, you want to make sure that you can sell at the best possible time. Money market accounts, CDs and investments in Treasury Bills or bonds are less risky than stocks but have lower long-term returns.

What to avoid – Investing dangers

  • Missing the boat : Even if it's only a little bit right now, it really pays to start investing right away. The sooner you start, the more you'll earn. Look for easy ways to start, such as a 401(k) plan at your job or automatic transfer from checking to savings each month. Not all employers offer these plans, so if you're job-hunting, look for one that does.

  • Too much risk : Don't invest in things like stocks unless you can afford to lose some or all what you invest. These investments can be risky, and they can decrease in value. Savings accounts, money market accounts, certificates of deposit (CDs) and treasury bills are all backed by the U.S. government, so you are guaranteed that you won’t lose your money.

  • All in one place : Don't put all of your life savings in one investment. Protect yourself by spreading your money among different kinds of investments. This is especially true of stocks. Never put all of your savings in a single company’s stock.

  • Investment fraud : There are professionals and firms who may be interested in taking your money, rather than making money for you. Don't believe everything you read, or assume that slick advertising is legitimate. And, never believe anyone who promises big returns with little or risk. This is very dangerous "red flag" that the investment is a scam. If it sounds too good to be true, it probably is.

  • High costs : Investing with a professional can be expensive. Make sure you are getting good, objective advice with someone who has your best interest at heart. Ask what all the fees are. If you are new to investing, mutual funds that track market indices like the S&P 500 can have very low costs – sometimes less than 0.2% of the money invested.